Payroll Terms
Tip income
A tip is a gratuity given to someone for services performed. Employees who work for food and beverage establishments rely on tips to supplement the earnings they receive from their employer. Tips are taxable for FICA and income tax purposes.
Workweek
A workweek is a fixed, recurring period of time that can start on any day of the week, and will end seven consecutive days later. Workweeks must be 168 consecutive hours or seven days in length. Overtime hours are measured relative to the total hours in a workweek.
Social Security Taxes
These taxes are also referred to as FICA (Federal Insurance Contributions Act) taxes. Amounts withheld for these taxes support three major programs known as insurance: Old Age, Survivors, and Disability.
Employee earnings record-
This accounting document provides a comprehensive history of the earnings of an employee during a calendar year. An employee earnings record will be maintained for each employee who is paid during the year. The record will generally show quarterly and year-to-date earnings amounts. It is used in conjunction with the payroll register.
FICA-
This acronym stands for Federal Insurance Contributions Act, which is part of the Social Security Act of 1935. The law provides old age, survivors and disability insurance for workers, which is known as social security. This term is used interchangeably with the term Social Security taxes.
FUTA
This acronym stands for Federal Unemployment Tax Act, which is another part of the Social Security Act of 1935. It established unemployment insurance for unemployed worker, and required states to set up unemployment funds to handle contributions from employers and claims from unemployed workers. FUTA law requires that employers pay federal unemployment tax and file a Form 940 or 940-EZ after the end of each year.
TIN
This acronym stands for taxpayer identification number. It is used in IRS publications another literature. A TIN could be an individual's social security number or an employer identification number (EIN).
State unemployment tax credi
This credit, also known as the normal credit, offsets the 6.2 percent rate for FUTA tax for any employer who pays into one or more state funds and has made timely payments into these funds. The credit is 5.4 percent, which reduces the rate of FUTA an employer will pay to .8 percent.
Friday deposit rule
for semi-weekly payroll tax depositors, this rule states that for the Saturday-Tuesday pay day period, any federal income and social security tax liability is due and payable the following Friday.
Pay Period
is a recurring period of time that has a specific starting and ending date that is used to track the hours worked by an employee. Pay periods can be daily, weekly, bi-weekly, semi-monthly, monthly, or quarterly.
IRS
is the acronym for Internal Revenue Service. The IRS is the branch of government responsible for administration and enforcement of tax laws and the collection of taxes from employers and individuals.
Gross Earnings
this refers to the total of all regular, overtime, and other earning and compensation an employee will earn within a pay period. This key amount will be used in computing federal, social security, state, and local taxes.
Time Clock
A time clock is a mechanical device that will record the hours employee's work. Time clocks can record time on a time card, or electronically on tape or computer disk. Time clocks generally record time using a 24-hour (military hours designation) day.
In/Out Earnings
These are earnings that are not actually paid to the employee but are recorded for tax purposes. An example would be Tips or Auto Allowance.
Semi-monthly pay period-
A semi-monthly pay period occurs twice each month, for a total of 24 times each year.
Tax Credit
A tax credit is a dollar amount that is netted against the amount of tax due. One dollar of tax credit will offset one dollar of tax. Congress allows tax credits under certain circumstances and in specific tax situations.
Banking Day
A banking day is an established range of time each business day. Bank transactions are considered complete if they have been transacted and occur within the established range of time. Generally, a banking day will end at 2:00 or 3:00 p.m. local time. Business transacted after this time is usually considered to be the next day's business.
Bi-weekly pay period
A bi-weekly pay period occurs once every two weeks, or 26 times per year.
Bonus
A bonus is income that is paid to an employee as an incentive for performance on the job or for achieving specific goals that the management of a company sets. The amount of a bonus is income to the employee and will be added to the regular and overtime earnings of an employee.
Calendar quarter-
A calendar quarter is a three-month time period, or thirteen weeks in length. Calendar quarters are January through March, April through June, July through September and October through December.
Calendar Year
A calendar year begins on January 1 and ends on December 31. Contrast this to a fiscal year, which begins on the first day of any month other than January and ends on the last day on any month other than December. • Normal year, fiscal year begins on any month other than January, but ends on anything before December 31
Minimum wage
A company that must comply with Federal wage and hour law is required to pay an hourly worker a minimum amount. This is referred to as the minimum (or federal) wage. The worker must be classified as non-exempt, and the employer must be engaged in interstate commerce.
Tax Exempt Deduction
A deduction that is tax exempt means that no income or social security taxes will be paid on the amount at the time it is deducted or at a later date. The deduction can be made free of any tax impact.
Tax Deferred Deduction
A deduction that is tax exempt means that no income taxes will be paid on the amount at the time it is deducted. Income taxes will eventually be paid on the deduction at a later date. The deduction is subject to Social security taxes at the time the amount is withheld from pay.
Draw-
A draw is a monetary advance given to salespeople, which will be paid back at a later date when future sales have been completed. Draws are generally netted against commissions earned on a monthly or quarterly basis. • Monetary value that has been given in advance before a sale is completed.
Fiscal Year
A fiscal year begins on the first day of any month other than January and ends on the last day of any month other than December.
Non- Exempt Employee
A non-exempt employee is an employee who will be paid overtime earnings for the hours worked in excess of 40 hours worked per workweek. Federal law provides rules for classifying an employee as non-exempt or exempt.
Independent Contractor
A person that performs services or provides a combination of goods and services to another person, business, or another independent contractor is called an independent contractor. The independent contractor is considered to be independent from the person or business that requests the services, and so the independent contractor may be considered self-employed.
Employee
An employee is a worker who is under the direct supervision and control of his employer. A worker usually will be classified as an employee by applying the common law test. Control is the key term in classifying a worker as an employee. An employee may work for one company and be leased to another, or the employee may work for a temporary agency and be assigned to a number of different employers over a period of time. • VS. an independent contracter, an employee can also work for a temp agency and assigned to different employeers. • It has to do with the output of the quality of work, the employeer has a say in how the work is done.
Employment Tax
An employment or head tax is levied on employees by certain localities for working in those localities. Such taxes are called occupational taxes, license fees, or earnings taxes.
940-
Any Employer who pays state unemployment taxes into two or more state funds files form 940, "Employer's Annual Federal Unemployment Tax Return," on an annual basis after December 31 of each year. Form 940 reports the amount of federal unemployment taxes paid or due on employer earning on a calendar year basis.
940-EZ-
Any employer who pays state unemployment taxes into only one state fund files form 940-EZ, "Employer's Annual Federal Unemployment Tax Return," on an annual basis after December31 of each year. Form 940-EZ reports the amount of federal unemployment taxes paid or due on employee earnings on a calendar year basis. It is less complex than the Form 940, used for employers who pay into more than one state unemployment fund.
Circular E
Circular E is also known as Publication 15, "Employer's Tax Guide." This IRS publication provides this guide each December for use the next calendar year.
Commissions
Commission income is income earned for transaction business on behalf of a company, with the goal being to close a sale. Commission income is taxable for federal, social security, and state income tax purposes.
Comp time
Compensation time, or comp time are overtime hours that are worked and "banked" by employees and then taken later as paid time off. Comp time offers the advantage of smoothing out a business's labor costs, because overtime hours are tracked for use as paid time off instead of paid directly to employees. Comp time is popular in the accounting and legal professions.
Employee Benefits-
Costs and expenses that an employer pays on behalf of its employees are known as employee benefits (also known as fringe benefits). If an employer pays the medical insurance premiums of an employee, it is considered a benefit. If an employer pays the medical insurance premiums of an employee, it is considered a benefit. Other common benefits include holiday and sick-leave pay. • Anything besides their salary
Earned Income Credit
Earned Income Credit (abbreviated as EIC) is a credit advanced to working taxpayers that support a dependent. An individual taxpayer may receive the earned income credit in a advance if he has what the IRS terms a qualifying child. Congress has granted this credit to taxpayers who maintain support of a qualifying child an whose earned and adjusted gross income is $27,413 or less for one qualifying child ( or $31,152 or less for two or more qualifying children) or less for 2000. Note that these amounts are indexed and can change annually.
Profit Sharing Plans
Employers that establish profit-sharing plans allow employees to share in the profits of a company on systematic basis. These plans are designed to reward employees for efficient, productive work. Income from profit-sharing plans can be paid directly to employees or may be used to fund retirement plans.
Federal Income Tax
Federal income tax refers to the tax that must be paid on income earned by employees. The requirement to tax income was passed into law on March 1, 1913, and was ratified as the sixteenth constitutional amendment. During World War II, the government required that employers with hold income taxes on employee earnings. The total of Federal income taxes withheld for a quarter by an employer must be reported on the Form 941.
Medicare Tax
Medicare tax (technically known as hospital insurance or HI) is used to pay medical expenses for retired and disabled individuals who have paid into the fund. The current rate paid by employees is 1.45% on all earnings. A worker's employer must match this amount on a dollar-for-dollar basis. Some people refer to this tax as social security, although it must be accounted for and tracked separately by an employer.
Non-Resident Employee (state)
Non-resident employees that work in one state and live in another state. These employees may be on temporary assignment working in a distant state from their home, or they may live in a state adjacent to the state in which they work. State rules for income tax withholding for non-resident employees vary with each state.
Overtime
Overtime or premium pay is an amount paid to employees who work in excess of 40 hours in a workweek. As a general rule, employees are eligible for overtime pay if they are classified as non-exempt employees. Some employees, by virtue of their job duties or their job title are considered exempt from being paid overtime.
Salaries-
Salaries are earnings paid to the employees on a weekly, bi-weekly, semi-monthly, or monthly basis. Salaried employees may be paid overtime depending on how they are classified (i.e., exempt or non-exempt).
Schedule EIC
Schedule EIC is called the Earned Income Credit. It must be prepared by an eligible taxpayer that is entitled to receive the earned income credit. Any employee who files a Form W-5 must file a Schedule EIC with his or her individual income tax return.
Taxes, social security
Social security taxes or FICA taxes are paid by employees (and matched by their employers) to provide benefits when the employee retires, is disabled, or to the employee's surviving family in the event of the employee's untimely death. This tax technically is known as OASDI tax.
Net Earnings
Sometimes called "take-home pay," net earnings means the amount of money an employee actually receives for a pay period after taxes and deductions have been withheld from gross earnings. This will be the amount of the employee's paycheck each pay-period.
Employer's Quarterly Federal Tax Return-
The Employer's Quarterly Federal Tax Return, commonly known as the Form 941, is used to report the total employer liability for social security and Federal income taxes each calendar quarter.
941-
The Form 941 is known as the "Employer's Quarterly Tax Return." It is used to report the total employer liability for social security and federal income taxes each calendar quarter. • Quarterly tax report • Tracks total employee liability for what they have to do on the quarters
W-5
The Form W-5 is known as the "Earned Income Credit Advance Payment Certificate." This form must be completed, dated, and signed by an employee who wishes to have the basic portion of the earned income credit advanced to him or her on a paycheck basis. The employee must complete a new W-5 form each year in order to receive the advanced credit for that year.
Payroll Accounting
The activity of calculating the earnings of employees and the related withholding for taxes and other deductions, recording the results of payroll activities, and the preparation of required payroll tax returns (federal, and state or local).
General Ledger
The general ledger is the accounting book that is used to maintain the current balance for each account used in a business. The general ledger is also referred to as a "running total." The general ledger can be used to obtain and verify amounts that will be reported on Form 941.
Marital Status
The marital status of an employee is requested on the Form W-4. It will be used to determine the income tax to be withheld on an employee's earnings each pay period.
Tax liability, federal
The term Federal tax liability refers to the total employer obligation for social security (employee and employer portions) and Federal income tax on a pay-period basis. This obligation will be reported in the section of the Form 941 known as the record of federal tax liability (or ROFT).
Allocated tips
The term allocated tips refers to an amount that is calculated based on a percentage of the gross receipts of a food or beverage establishment. A prorated allocated amount of tips may be distributed to an employee who reported less than the allocated amount to his/her employer.
Voluntary deductions
The term voluntary deductions refer to deductions that are employee authorized and initiated. The employee will complete and sign an authorization form that provides specific information about the deduction. Charitable contributions, credit union payments, payments for medical insurance premiums, and the purchase of U.S. savings bonds are typical examples of voluntary deductions.
Wages
The term wages refers to the earnings of employees who are paid on an hourly or weekly basis.
Earnings-
These are anything that employers use to record payments to an employee. These can be taxed differently and used to separate different types of amounts.
Accruals
These are benefits that companies may allow their employees to receive. They are usually in the form of Sick, Vacation, Personal, or Paid Time Off hours that they can earn in order to use at a later date. • Any benefits that an employee can start to accrue/earn. Something you are working towards based on your work.
3PSP
These are disability payments that are paid to a person who has elected short term disability. This is known as 3rd Party Sick Pay because the employer is not actually paying the employee the money. They are receiving the money from the insurance company, or the 3rd Party. When this happens, the employer is required to pay their portion of the taxes. The employee had their portion of the taxes taken out before the insurance company paid them. • You will see this term a lot in tax packet • Its disability pay for an employee who selected short term disability, the money is coming from the insurance company. • The employer pays the tax.
Social Security Administration
This federal agency (also known as the SSA) was created as a result of the Social Security Act of 1935. It oversees the social security fund, which pays benefits to eligible individuals. The agency is also responsible for maintaining a database of taxpayer earnings information. W-2 forms must be sent to the SSA for processing purposes.
W-2
This form is also called the "Wage and Tax Statement." It is issued annually to any employee who earned wages or had federal income or social security taxes withheld during the year. It is a multi-part form that is distributed to the employee, employer, Social Security Administration, and state, county, or local taxing authorities. • An employee who has the quality of output of work
1099-MISC
This form is called "Miscellaneous Income." It used to report payments made to independent contractors when the payment made is $600 or more in a calendar year. It can also be used for other types of payments made such as royalties, rents, commissions, fees, prizes, and other income. The form should be issued annually to recipients of such payments by the last day of February for any payments made in the prior calendar year. • Tax form with an independent contractor • Unlike the w/2: you cant control the output • In excess of $600 or more • You cant control the way they complete the projects o Control the quality they produce
941-X-
This form is called the "Adjusted Employer's Quarterly Federal Tax Return." This form is used to correct errors made on previously filed 941 forms. This form must be filed with a Form 941-it cannot be filed separately.
W-4
This form is known as the "Employee's Allowance Withholding Certificate." A new employee will fill this form out, providing the payroll professional with information needed to calculate the employee's income tax withholding. An employee can revise a W-4 form at any time. Some states require that a separate state form be completed for state income tax withholding purposes.
W-3
This form is known as the "Transmittal of Income and Tax Statements." It will be submitted along with one or more W-2 forms for a given employer identification number. The form is used by the Social Security Administration to reconcile the amounts found on the individual W-2 forms for a given EIN.
Check Register
This is a cumulative payroll report that reflects the current hours and dollars, taxes and net that were paid on the current payroll for each employee. • one of the most important things • check to see if the payroll was done correctly • at the bottom of the check register, you will see the totals
Before-tax deduction-
This is a deduction that is made before any taxes are calculated or withheld from an employee. The effect of such a deduction is that taxes will be calculated and paid on a lesser amount of the earnings of the employee. A before-tax deduction offers a tax savings to an employee. Contributions to a retirement plan and medical insurance premiums may be deducted before-taxes.
After-tax deduction
This is a deduction that is made from the gross earnings of an employee. An after-tax-deduction offers no tax savings to an employee. Labor union dues and charitable contributions are two typical examples of after-tax deductions.
S125 Plans
This is a separate written plan maintained by an employer for employees that meets the specific requirements of and regulations of section 125 of the Internal Revenue Code. It provides participants an opportunity to receive certain benefits on a pretax basis. Participants in a cafeteria plan must be permitted to choose among at least one taxable benefit (such as cash) and one qualified benefit.
Labor distribution
This is a term used in conjunction with preparing a payroll register. The labor distribution section of a payroll register is the section of the register where each employee's gross earnings will be debited to an expense account. This distribution will allow for easier preparation of journal entries. Employers may want to show the hours worked in different departments on the payroll records.
FEIN
This is an acronym that stands for Federal Employer Identification Number. See EIN. • Like an social security number • This one is federal vs. state EINs
SUTA-
This is an acronym that stands for state unemployment tax acts. All states, Puerto Rico, the Virgin Islands, and Guam have passed legislation that governs unemployment taxes, benefits, and other types of insurance such as worker's compensation and disability insurance.
Deductions
This is anything that can come out of the employee's check, to pay for benefits, loans, child support, etc.
DBA
This is clients Doing Business As name. • The name their customers know them as. • Vs. their legal name like pizza hut vs. Pizza Hut llc o DBA is the Pizza Hut (what people know me as) .
Manual Check
This is how an employer will record something in our system that was left out of payroll. This will calculate the taxes and net pay for the employee based on what the client has entered.
Departments
This is what employers use to classify employees into different types of work to keep track of how many hours are worked in each area.
Age Discriminations in Employment Act
This law prohibits employment discrimination against individuals who are over 40 years old. It also prohibits a company from establishing a mandatory retirement age.-
Short Term Disability
This pays a percentage of your salary if you become temporarily disabled, meaning that you are not able to work for a short period of time due to sickness or injury (excluding on-the-job injuries, which are covered by workers compensation insurance).
Cafeteria Plan
This plan is technically known as a Section 125 (or 125) plan. It offers a variety of benefits to employees that can be deducted on a before-tax basis. This type of plan is also referred to as a flexible benefit plan. Another version of this plan is called a flexible spending arrangement.
Supplemental Wages
This term is used to denote compensation that is paid in addition to an employee's regular wages or salary. Examples of supplemental wages may include (but are not limited to) commissions, bonuses, tips, vacation pay, sick leave, severance pay, awards, and prizes. Generally, federal withholding can be made at a flat rate of 28% in addition to social security, medicare, and other state or local taxes. Tip income and vacation pay may be treated as supplemental wages at the employer's option.
Involuntary Unemployment
This term is used to describe a situation in which a worker becomes unemployed through no fault of the worker. Typically, corporate downsizing efforts, layoffs, or the employer going out of business are the main reasons for a worker to become involuntarily unemployed.
Taxes, Form 940
This term is used to refer to federal unemployment taxes. An employer will pay federal unemployment taxes on worker earnings and file either a Form 940 or 940-EZ, "Employer's Annual Federal Unemployment Tax Return," on an annual basis after December 31 of each year. Federal unemployment taxes must be deposited according to the IRS deposit rules using an 8109 form.
Year-to-date totals
This term refers to an amount that is tracked as a cumulative total, like the balance found in a general ledger account. Year-to-date totals (or Y-T-D totals) are used in employee earnings records, W-2 forms, and on paycheck stubs.
Taxes, Form 941
This term refers to federal income, social security, and Medicare taxes. An employer will pay federal unemployment taxes on worker earnings and file either a Form 941, the "Employer's quarterly Federal Tax Return," each calendar quarter to report the amounts withheld and due for these taxes. Form 941 taxes will be deposited using and 8109 form according to IRS payroll tax deposit rules.
Salary reduction plan
This type of plan is technically known as a Section 401K or salary deferral plan. An employee that participates in this type of plan will have a certain percentage deducted from earnings and placed into this plan. The amount deducted is not subject to federal income tax but is taxable for social security purposes.
Void
This what employers can do if an earning was paid incorrectly, this can be done to back out the earnings.
Auto decrement
This will automatically reduce a salary employees wages in Paycom's system if they are paid Sick time, for example. As long as the sick time is set up correctly, when 8 hours are entered on the time card, it will reduce the regular automatically to 72.
Tip Credit
Under the Fair labor Standards Act (FLSA), the tip credit is granted to certain employers whose employees receive tips on a recurring basis. This tip credit allows an employer to pay less than the current minimum wage to employees who receive tips that, on average, will equal or exceed the tip credit on an hourly basis. Other rules apply in order for an employer to legitimately use the tip credit.
Withholding Allowance
Withholding allowances are dollar amounts that are subtracted from an employee's earnings in arriving at the amount subject to income taxes. The number of withholding allowances claimed by an employee on the Form W-4 will be used to determine the amount of income taxes to be withheld.
ACH
is the acronym that stands for Automated Clearing House. This is the entity that is responsible for electronically transmitting funds between banks. The ACH will use the Federal Reserve telecommunications network for transmitting funds between financial institutions. There are over 40 local and regional ACH's in the U.S. • a third party that does the transfer from one bank account to another bank account • what uses the federal reserve telecommunications network • its important to know because they are usually talking about direct deposit o in reality they want to know if there is an automated way to deposit the funds • Its just a check and balances, it's a third party before its moved • Unlike paycom pay
EIN
is the acronym that stands for Employer Identification Number. It sometimes abbreviated as FEIN, or federal employer identification number. The IRS issues the EIN to a company and it must be used for reporting purposes. The EIN must be used on Forms 941, 8109, W2-s, and the W-3. A company may also have a state EIN that may be a different number from the Federal EIN. Sometimes it is synonymous with the acronym TIN (Taxpayer's Identification Number). • Like a businesses's social security number. • The way you are able to identify a specific business, • Its used as a tracker for businesses to see how they are reporting to the IRS.
401K-
• The employee elects to put a percentage(5%) or a fixed amount ($100 per month) • You have to know if it is done by a week or bi weekly basis. • Then the employeer reports the info to the 3rd party company that handles the 401K. o Get them to understand the changes in CONTRIBUTIONS. • The third party also needs to know if there is a match. o The match is at a pre-tax rate • The post-payroll is what controls how much each person contributes to their 401k o That's the time payroll people have to do spreadsheets. • Reports like: general ledger, 401K